The Cost of a Bad Hire

When a great hire joins a company, the effects can be extraordinary. They can help galvanize a struggling workforce and inspire changes that can turn a business around. However, the other side of the coin can have dramatically adverse effects. 

A bad hire can cost a company more than just money; it can also impact productivity, morale, and the overall work environment. Understanding the cost of a bad hire and how to mitigate these risks is essential for maintaining a thriving business. 

What Is the Average Cost of a Bad Hire?

The cost of a bad hire can be enormous in monetary value, ranging from 30% of the employee’s first-year earnings to as much as $240,000, depending on the position and the company – according to the United States Department of Labor. This figure includes the direct costs of hiring, such as recruitment, training, and salary, as well as indirect costs, such as decreased productivity, increased turnover, and potential legal issues. 

How Does the Cost of a Bad Hire Impact a Company?

Monetary Costs

With eye-watering figures like those seen above, the financial impact of a bad hire can be severe enough to jeopardize a business. The recruitment process can be expensive, with a new employee costing roughly $4,425, but you could spend several times that if things go poorly.

Once the hire is onboard, the company incurs additional costs for training and integration, but if you encounter problems, these costs can quickly spiral upwards. Additional focus and further training might be needed, which costs and may affect potential revenue because you have to direct resources elsewhere. 

Finally, should you need to part ways with a bad hire, you’ve got to consider the expenses of termination, severance pay, and the cost of hiring and training a replacement. 

Lost Productivity

A well-oiled, happy, productive team can be a joy to watch, but the results can be catastrophic if you throw a bad apple into the mix. An underperforming or lazy employee means others must pick up the slack, causing resentment and eventually bitterness. 

The added stress on others can quickly torpedo overall productivity, meaning a high-performing team can easily take a nosedive purely on a single new addition. Moreover, the time spent managing and correcting mistakes and trying to boost productivity further detracts from the team’s efficiency. 

Decreased Employee Morale

If productivity is one of the first aspects to falter, employee morale isn’t far behind it. A bad hire who doesn’t fit into the team or who spreads toxicity can quickly act as poison to those around them. Before you know it, employee morale has plummeted, staff are leaving – or at the very least considering it – and you have a major problem on your hands.

What Red Flags Should You Look Out for To Avoid a Bad Hire?

While it’s easy to feel that a bad hire snuck up on you undetected, looking back, there were often missed red flags. Identifying and accurately assessing these warnings is key to minimizing the chances of a bad hire. 

• Poor Performance During the Interview – A poor interview is the best place to start. If a would-be candidate can’t confidently answer questions or provide specific examples of past achievements, you should ask yourself whether this is the right person for the job. 
• Lack of Cultural Fit – Misalignment with the company’s values, mission, and work environment is a huge problem. This doesn’t mean that everybody needs to be clones of each other, but it’s vital that you try to create a harmonious work environment with a solid cultural fit.
• Inconsistent Employment History – A major red flag is when employment history doesn’t quite add up. Perhaps there have been frequent job changes or unexplained gaps, which should be addressed clearly in the interview and during the employment verification service.
• Negative References – If a candidate receives negative references, this should set off a blaring warning alarm. Poor feedback from previous employers or colleagues shouldn’t be overlooked simply because the person seems like a great fit. People can turn on the charm in an interview and easily fool you. 
• Overqualification or Under Qualification – A mismatch between the candidate’s skills and the job requirements isn’t necessarily a deal breaker but requires a second look. Why does somebody who is clearly overqualified for a position want that job? 

It could be a lack of options or a checkered work history, but having somebody on the team who, on paper, is far above that level could become a problem. In this case, it’s best to bring it up during an interview and hear their reasoning.

How Should You Deal with a Bad Hire?

Identify the Problem

It’s sometimes clear that there’s a problem, but identifying it and creating an action plan can be complex. To begin with, you need to identify the specific issues that are causing problems. You can’t simply call somebody into an office and tell them they’re a bad hire—you need to narrow down the problems. 

It might involve performance evaluations, colleague feedback, and self-assessments, but understanding the root cause is vital before taking further action. 

Open Communication with the Employee

It can be easy to shy away from difficult conversations, but maintaining open lines of communication with the employee is crucial. Schedule a meeting to discuss the performance issues, provide specific examples, and give them a chance to respond freely without fear of retribution. 

External factors may contribute to their underperformance, either within the company or outside, but laying everything on the table clarifies that things need to improve. 

Provide Additional Training or Support

If performance issues stem from a lack of skills or knowledge, consider providing additional training or support. This is the fair way to do things and is reflected in most legal frameworks surrounding workplace disciplinary issues.

Not providing options for formal training programs, mentorships, or on-the-job coaching can easily lead to financial claims if a dispute is raised after termination.

Consider Reassignment or Termination

If the employee continues to underperform despite additional support, it may be necessary to consider reassignment or termination. Reassignment to a role that better matches the employee’s skills and abilities can be a viable option. 

However, if no suitable position is available, termination may be the best course of action to protect the company’s interests. In this case, it’s vital that you have followed legal protocol and documented the process in its entirety. 

Frequently Asked Questions

How Do You Calculate the Cost of a Bad Hire?

Calculating the cost of a bad hire involves several factors, including recruitment, training, salary and benefits, lost productivity, replacement costs, and potential legal costs. According to the United States Department of Labor, this can add up to 30% of the employee’s salary in their first year.

What Are the Statistics for Bad Hires?

According to a CareerBuilder survey, 74% of employers admit to hiring the wrong person for a position. Additionally, 37% of companies reported that a bad hire significantly affected employee morale, while 18% noted a negative impact on client relations. 

Final Thoughts

The cost of a bad hire can have far-reaching consequences that go much further than a monetary hit. It can lead to a slump in productivity and employee morale, a toxic work environment, and a rising turnover rate. A bad hire can easily destroy a happy, cohesive team and dramatically affect a company. 

The first and most crucial stage is highlighting potential bad hires during the application phase. Successfully pinpointing the red flags and following up where necessary is an indispensable safety net that can help weed out most cases. Based on our detailed findings, ScoutLogic’s background screening services offer comprehensive solutions to help businesses make informed hiring decisions. Don’t take the risk with bad hires; screen applications carefully, and your chances of avoiding them rise dramatically.

David Garcia

David Garcia, co-founder and CEO of Scout Logic, is an industry leader in the bulk background check world. With his strategic acumen and expertise in the HR sphere, specifically in hiring, recruiting, legal compliance, background checks, and resume screening, he’s an invaluable asset and consultant.

David's counsel extends across the boards of ScoutLogic, YipitData, and Supplier.io, drawing from his impactful stints on the boards of Infutor and Avetta. With an extensive 25-year journey, he champions unparalleled B2B commercial leadership within data & analytics, significantly shaping the HR landscape.